water law in real estate transactions

Online CLE

Water Law in Real Estate Transactions

.75 General CLE credit

From the Oregon State Bar CLE seminar Current Advanced Topics in Real Estate and Land Use, presented on April 19, 2019

© 2019 Richard Glick, Adam Sussman. All rights reserved.

Chapter 3

Presentation Slides: Water Rights Auditing: Protecting Value in Transactions

RichaRd GlickDavis Wright Tremaine LLP

Portland, Oregon

adam SuSSmanGSI Water Solutions Inc.

Corvallis, Oregon

Chapter 3—Presentation Slides: Water Rights Auditing: Protecting Value in Transactions

3–iiCurrent Advanced Topics in Real Estate and Land Use


3–1Current Advanced Topics in Real Estate and Land Use

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Water Rights Auditing: Protecting Value in Transactions

Rick Glick, Davis Wright Tremaine LLP

Adam Sussman, GSI Water Solutions, Inc.Oregon State Bar: Current Advanced Topics in Real Estate and Land Use

April 19, 2019

April 19, 2019

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Water Rights Auditing Overview

Audits examine paper rights, government records, owner records and sometimes includes on-the-ground investigations

Validity of water rights drives value for

– Agricultural properties

– Vineyards/wineries

– Aquaculture facilities

– Resort properties



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Water Rights 101

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Water Rights 101

Water rights east of the Rockies governed by English riparian rights principles

– Adequate rainfall means no need to irrigate

– All owners of streamside property share

– Reasonable use



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Water Rights 101

Wild West: Prior Appropriation Doctrine

– Arid conditions + Manifest Destiny = new concept

– Mining and irrigated agriculture

– Principles:• First in time, first in right

• Physical removal from stream and evidence of claim

• Prompt and constant use

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Water Rights 101

States adopted water codes to regulate use

– Oregon 1909 (ORS Chapter 537)

– Washington 1917 (RCW Chapter 90.03)

– California 1914 (Cal. Water Code Div. 2)

– Pre-water code rights determined in adjudication



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Water Rights 101

2-step approval process

– Application for permit sets priority date

– Permit allows development and use--inchoate

– Certificate (“license” in CA) is vested right

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Water Rights 101

Permit needed for surface and ground water use

Water use must be consistent with permit or certificate conditions—often isn’t!

Non-use can result in loss of rights, in whole or in part

– ORS 540.610: rebuttable presumption of forfeiture

– RCW 90.14.160: relinquishment unless good cause

– CWC 1627, 1675: revocation if not used



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Water Rights 101

California is special in so many ways!– No permit system for groundwater (unless underground channel)

– Riparian rights still valid

– Subject to Public Trust Doctrine

• Nat’l Audubon Soc’y v. Superior Court of Alpine Cnty. (Mono Lake Case), 658 P.2d 709 (Cal. 1983).

• Correlative rights

• Rights determined in decades long adjudications

• SGMA establishes planning process (AB 1739, SB 1168, and SB 1319 (2015))

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Water Rights Audit

Water rights audit defined

Common information for audit

Practice tips

A case for proactive water rights audits



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Water Rights Audit

Topics of water right/water use review:• In good standing or subject to cancellation?

• Use in accordance with terms and conditions?

• Conditions that may limit water use?

• Sufficient quantity of water?

• Is authorized source sufficient?

• Who “owns” the water right?

• Are there water right-related agreements?

• Adequate infrastructure?

• Access to sources of supply?

If supply is inadequate, are other options available?

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Water Rights Audit Sources of Information

The Oregon Water Resources Department:

www.oregon.gov/OWRD. Online resources include water rights and maps, GIS mapping, well logs, water use reporting, scanned file contents (sometimes)

• Official file review – don’t overlook!



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Water Rights Audit Sources of Information

Interviews with OWRD enforcement and field staff

Records held by seller – use, agreements, correspondence with OWRD

Site visit – confirm use, condition compliance,infrastructure capacity, measuring devices

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Water Rights Audit Typical Issues

1. Water use but no water rights

2. Water use but not authorized location, source, POD, well, or use

3. Water rights but no use

4. Water right conditions unmet

5. Permit development timelines lapsed



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Water Rights Audit Typical Issues

6. “Paper water rights” exceed supply

7. Insufficient infrastructure

8. Pending transactions

9. Water right ownership

10. Supplemental vs. primary

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Case Studies

Farmland acquisition in Eastern Oregon– 10,000 acres, high value

– Several farms, some owned, some leased

– Complicated water rights and irrigation operations

• Multiple rights with different priorities

• Water rights moved throughout season per temporary transfers



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Case Studies

Oregon vineyard in Eastern Oregon– $9,000,000 value, 404 acres



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Case Studies

Vineyard (cont.)– Serious Water Management Problem Area

• Critical Groundwater Area?

• Junior water rights, could lead to curtailment

• Can’t support claim of separate aquifer

– Alternatives:

• Artificial recharge/aquifer storage & recovery

• Acquire senior water rights



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Case Studies

Citrus farm in Central Valley, California– $31,000,000 value, 900 acres

– Multiple farms

– Multiple water sources, but none available during drought!

– Relied on spot market

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Water Rights Audit Practice Tips

Time – provide enough time before closing, – often complex with lots of information

Location, location, location – Make sure everyone is on the same page. Are the subject properties clearly identified?



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Pending transactions – focus on loose ends –expired “c” dates, pending extensions, COBUs and transfers

Understand and evaluate conditions, especially groundwater level conditions

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Ownership and agreements – OWRD views permits as personal property and appurtenancy is not the end of the story

Look forward – CGWA, Willamette Basin Bi-Op, stored water contracts




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Water Rights AuditPractice Tips

Compile information into an easy-to-understand format

Develop a detailed “to-do” list prior to closing –assignments, ownership updates, agreement modifications, completion of pending transactions, etc.

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Proactive Water Rights Audit

gsiws.com



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Water Rights Audit Questions?

Rick GlickDavis Wright Tremaine [email protected]

Adam SussmanGSI Water [email protected]

water law in real estate transactions

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